Alliance Healthcare Services Reports Results for the First Quarter
Ended March 31, 2017

May 09, 2017 04:02 PM Eastern Daylight Time

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Alliance HealthCare Services, Inc. (NASDAQ: AIQ) (the “Company,”
“Alliance,” “we” or “our”), a leading national provider of outsourced
radiology, oncology and interventional services, announced today the
results for the first quarter ended March 31, 2017.

First Quarter 2017 Highlights

The Company reported revenue totaling $129.9 million for the first
quarter, a $6.2 million or 5.0% increase over the first quarter of
last year.

The Company generated $32.8 million of Adjusted EBITDA (as defined
below) for the quarter, a $2.4 million or 7.9% increase from the first
quarter of last year.

The Company continued to generate strong cash flow with $19.9 million
in quarterly operating cash flow.

Adjusted Net Income Per Share (as defined below) was $0.17,
representing an increase of $0.13 per diluted share from the first
quarter of last year. GAAP net income per share increased by $0.05 per
diluted share from the first quarter of last year.

Alliance Radiology revenue increased by 2.2% to $87.8 million.

Alliance Oncology revenue increased 15.2% to $30.0 million for the
quarter.

The Company closed with a total leverage ratio, calculated pursuant to
its Credit Agreement, of 4.00 to 1.00 as of March 31, 2017.

First Quarter 2017 Financial Results

“Consistent with our expectations for 2017 that we outlined with our
guidance for the year, our team delivered solid growth in both revenue
and Adjusted EBITDA. Most importantly, Adjusted EBITDA increased by
7.9%, and Adjusted Net Income increased approximately threefold, when
compared to the first quarter of 2016. From a balance sheet perspective,
we continue to make progress in reducing our long-term debt, which is
down $7.7 million compared to December 31, 2016,” stated Tom Tomlinson,
Chief Executive Officer and President of Alliance Healthcare Services.
“While overall results were solid, we experienced same-store volume
challenges in our Oncology business and in the MRI segment of our
Radiology business. Fortunately, we have seen strengthening as we moved
through the quarter and that improved pace has continued into April. We
remain confident that we will deliver results for 2017 that are
consistent with the guidance we have provided to investors,” continued
Mr. Tomlinson.

Revenue for the first quarter of 2017 increased to $129.9 million,
compared to $123.7 million in the first quarter of 2016. This increase
was primarily due to increases in Radiology and Oncology revenue of $2.2
million and $4.0 million, respectively.

Adjusted EBITDA for the first quarter of 2017 increased to $32.8
million, compared to $30.4 million in the first quarter of 2016. The
increase was primarily due to increases in earnings from Radiology and
Oncology, partially offset by Corporate investments as well as a slight
decline in the Interventional segment. Adjusted EBITDA growth in both
Radiology and Oncology was driven by year-over-year same-store volume
growth in PET/CT as well as the addition of new partnerships such as the
Northern Alabama Cancer Care Network. The decline in the Interventional
business was driven by challenges in physician capacity as well as
additional platform investments made to strengthen management and
development capabilities. Corporate / Other Adjusted EBITDA decreased
due to additional investments in international expansion as well as
organization, systems and infrastructure to support expanded workforce,
entities and partnerships.

Net loss for the first quarter totaled $0.6 million, compared to net
loss of $1.2 million in the first quarter of 2016. The $0.6 million
increase in income is largely due to $2.4 million of Adjusted EBITDA
generated by our segments, a $1.5 million decrease in share-based
compensation expense related to a change in control in connection with
Tahoe Investment Group Co., Ltd.’s (“Tahoe’s”) majority ownership
purchase of common stock from the Company’s former shareholders on March
29, 2016 (“Tahoe Transaction”), partially offset by an increase of $1.8
million in depreciation and amortization due to our capital investments,
a $1.2 million increase in interest expense, net and a $0.9 million
decrease in income tax benefit.

GAAP net loss per share on a diluted basis for the first quarter of 2017
was $0.06 per share, compared to GAAP net loss per share of $0.11 in the
first quarter of 2016. Excluding the impact of the expenses related to
the Tahoe Transaction, GAAP net income per share on a diluted basis
would have been $0.09 for the first quarter of 2017, compared to net
loss per share of $0.06 in the first quarter of 2016. Adjusted Net
Income Per Share was $0.17 and $0.04 for the first quarters of 2017 and
2016, respectively. GAAP net income per share on a diluted basis was
impacted by net charges of $0.23 and $0.15 in the first quarters of 2017
and 2016, respectively, which were comprised of: severance and related
costs; restructuring charges; transaction costs; shareholder transaction
costs; deferred financing costs in connection with shareholder
transaction; legal matters expense, net; changes in fair value of
contingent consideration related to acquisitions; other non-cash
(benefits) charges, net; and differences in the GAAP income tax rate
from our historical income tax rate of 42.5%.

Cash flows provided by operating activities totaled $19.9 million for
the first quarter 2017, compared to $22.7 million in the first quarter
of 2016. Total capital expenditures, including cash paid for equipment
purchases and deposits on equipment, totaled $7.3 million for the first
quarter 2017 compared to $22.2 million in the first quarter of 2016.
Growth capital expenditures totaled $3.9 million and maintenance capital
expenditures totaled $3.4 million.

Alliance’s gross debt, defined as total long-term debt (including
current maturities but excluding the impact of deferred financing
costs), decreased $7.7 million to $565.5 million at March 31, 2017 from
$573.2 million at December 31, 2016. Cash and cash equivalents were
$21.5 million at March 31, 2017 and $22.2 million at December 31, 2016.

Alliance’s total debt, as defined above, divided by the last twelve
months Consolidated Adjusted EBITDA was 4.00x for the twelve month
period ended March 31, 2017, compared to 4.03x for the year ended
December 31, 2016 and 4.22x for the quarter ended March 31, 2016.

Full Year 2017 Guidance

Alliance’s full year 2017 guidance ranges are as follows:

(in millions)

Ranges

Revenue

$529 - $540

Adjusted EBITDA

$135 - $140

Capital expenditures

$54 - $70

Maintenance

$30 - $35

Growth

$24 - $35

Decrease in long-term debt, net of the change in

cash and cash equivalents (before investments in

acquisitions), before growth capital expenditures

or “free cash flow before growth capital expenditures”

$50 - $55

Decrease in long-term debt, net of the change

in cash and cash equivalents (before investments in

acquisitions), after growth capital expenditures

or “free cash flow after growth capital expenditures”

$19 - $26

First Quarter 2017 Earnings Conference Call

Investors and all others are invited to listen to a conference call
discussing first quarter 2017. The conference call is scheduled for
Tuesday, May 9, 2017 at 5 p.m. Eastern Time. Additionally, a live
webcast of the call will be available on the Company’s website at www.alliancehealthcareservices-us.com.
Click on “About Us,” then, “Investor Relations.” You will find the Audio
Presentation in the “News & Events” section. A replay of the webcast
will be available on the Company’s website until July 7, 2017.

The conference call can be accessed at 877.638.4550 (International
callers can dial 443.961.0596). Interested parties should call at least
five minutes prior to the call to register. A telephone replay will be
available until July 7, 2017. The telephone replay can be accessed by
calling 855.859.2056. The conference call identification number is
10068565.

Definition of Non-GAAP Measures

Total Adjusted EBITDA and Adjusted Net Income Per Share are not measures
of financial performance under generally accepted accounting principles
in the United States (“GAAP”).

For a more detailed discussion of these non-GAAP financial measures and
a reconciliation to the most directly comparable GAAP financial measure,
see the section entitled “Non-GAAP Measures” included in the tables
following this release.

About Alliance HealthCare Services

Alliance HealthCare Services (NASDAQ: AIQ) is a leading national
provider of outsourced medical services including radiology, oncology
and interventional. We partner with healthcare providers and hospitals
to provide a full continuum of services from mobile to fixed-site to
comprehensive service line management and joint venture partnerships. We
also operate freestanding clinics and Ambulatory Surgical Centers
(“ASCs”) that are not owned by hospitals or providers.

As of March 31, 2017, Alliance operated 617 diagnostic radiology,
radiation therapy, and interventional radiology systems, including 103
fixed-site radiology centers across the country, and 35 radiation
therapy centers and SRS facilities. With a strategy of partnering with
hospitals, health systems and physician practices, Alliance provides
quality clinical services for over 1,100 hospitals and other healthcare
partners in 46 states, where approximately 2,450 Alliance Team Members
are committed to providing exceptional patient care and exceeding
customer expectations. For more information, visit www.alliancehealthcareservices-us.com.

Forward-Looking Statements

This press release contains forward-looking statements relating to
future events, including statements related to the Company’s long-term
growth strategy and efforts to diversify its business model, the
Company’s plans to expand its Interventional Division, both organically
and through one or more acquisitions, the Company’s expectations
regarding growth across the Company’s divisions, the expansion of its
service footprint and revenue growth, maximizing shareholder value, and
the Company’s Full Year 2017 Guidance, including its forecasts of
revenue, Adjusted EBITDA, capital expenditures, and decrease in
long-term debt. In this context, forward-looking statements often
address the Company’s expected future business and financial results and
often contain words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks” or “will.” Forward-looking statements by
their nature address matters that are uncertain and subject to risks.
Such uncertainties and risks include: changes in the preliminary
financial results and estimates due to the restatement or review of the
Company’s financial statements; the nature, timing and amount of any
restatement or other adjustments; the Company’s ability to make timely
filings of its required periodic reports under the Securities Exchange
Act of 1934; issues relating to the Company’s ability to maintain
effective internal control over financial reporting and disclosure
controls and procedures; the Company’s high degree of leverage and its
ability to service its debt; factors affecting the Company’s leverage,
including interest rates; the risk that the counterparties to the
Company’s interest rate swap agreements fail to satisfy their
obligations under these agreements; the Company’s ability to obtain
financing; the effect of operating and financial restrictions in the
Company’s debt instruments; the Company’s ability to comply with
reporting obligations and other covenants under the Company’s debt
instruments, the failure of which could cause the debt to become due;
the accuracy of the Company’s estimates regarding its capital
requirements; the effect of intense levels of competition and
overcapacity in the Company’s industry; changes in the methods of third
party reimbursements for medical imaging, oncology and interventional
services; fluctuations or unpredictability of the Company’s revenues,
including as a result of seasonality; changes in the healthcare
regulatory environment; the Company’s ability to keep pace with
technological developments within its industry; the growth or lack
thereof in the market for radiology, oncology, interventional and other
services; the disruptive effect of hurricanes and other natural
disasters; adverse changes in general domestic and worldwide economic
conditions and instability and disruption of credit and equity markets;
difficulties the Company may face in connection with recent, pending or
future acquisitions, including unexpected costs or liabilities resulting
from the acquisitions, diversion of management’s attention from the
operation of the Company’s business, costs, delays and impediments to
completing the acquisitions, and risks associated with integration of
the acquisitions; and other risks and uncertainties identified in the
Risk Factors section of the Company’s Form 10-K for the year ended
December 31, 2016, filed with the Securities and Exchange Commission
(the “SEC”), as may be modified or supplemented by our subsequent
filings with the SEC. These uncertainties may cause actual future
results or outcomes to differ materially from those expressed in the
Company’s forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company does not undertake to update its
forward-looking statements except as required under the federal
securities laws.

ALLIANCE HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share amounts)

Quarter Ended March 31,

2017

2016

Revenues

$

129,936

$

123,725

Costs and expenses:

Cost of revenues, excluding depreciation and amortization

75,049

70,914

Selling, general and administrative expenses

23,535

25,265

Transaction costs

162

417

Shareholder transaction costs

869

1,009

Severance and related costs

634

1,716

Depreciation expense

14,073

13,048

Amortization expense

3,275

2,443

Interest expense, net

8,700

7,495

Other income, net

(483

)

(787

)

Total costs and expenses

125,814

121,520

Income before income taxes, earnings from unconsolidated investees,
and noncontrolling

interest

4,122

2,205

Income tax benefit

(3

)

(945

)

Earnings from unconsolidated investees

(336

)

(252

)

Net income

4,461

3,402

Less: Net income attributable to noncontrolling interest

(5,075

)

(4,592

)

Net loss attributable to Alliance HealthCare Services, Inc.

$

(614

)

$

(1,190

)

Comprehensive loss, net of taxes:

Net income

4,461

3,402

Unrealized gain (loss) on hedging transactions, net of taxes

13

(38

)

Reclassification adjustment for losses included in net loss, net of
taxes

19

—

Total comprehensive income, net of taxes

4,493

3,364

Comprehensive income attributable to noncontrolling interest

(5,075

)

(4,592

)

Comprehensive loss attributable to Alliance HealthCare Services, Inc.

$

(582

)

$

(1,228

)

Loss per common share attributable to Alliance HealthCare Services,
Inc.:

Basic

$

(0.06

)

$

(0.11

)

Diluted

$

(0.06

)

$

(0.11

)

Weighted average number of shares of common stock and common stock
equivalents:

Changes in equipment purchases in accounts payable and accrued
equipment

22

3,521

Noncontrolling interest assumed in connection with acquisitions

—

1,716

ALLIANCE HEALTHCARE SERVICES, INC.NON-GAAP MEASURES

Total Adjusted EBITDA and Adjusted Net Income Per Share (the “Non-GAAP
Measures”) are not measures of financial performance under generally
accepted accounting principles in the U.S. (“GAAP”).

Total Adjusted EBITDA, as defined by the Company’s management, is
consistent with the definition in the Company’s Credit Agreement and
represents net (loss) income before: income tax (benefit) expense;
interest expense, net; depreciation expense; amortization expense;
share-based payment; severance and related costs; net income
attributable to noncontrolling interest; restructuring charges;
transaction costs; shareholder transaction costs; impairment charges;
legal matters expense (income), net; changes in fair value of contingent
consideration related to acquisitions; and other non-cash (benefits)
charges, net, which include gain on sale of assets, net. The components
used to reconcile net (loss) income to Total Adjusted EBITDA are
consistent with our historical presentation of Total Adjusted EBITDA.

Adjusted Net Income Per Share, as defined by the Company’s management,
represents net loss before: severance and related costs; restructuring
charges; transaction costs; shareholder transaction costs; deferred
financing costs in connection with shareholder transaction; legal
matters expenses, net; changes in fair value of contingent consideration
related to acquisitions; other non-cash (benefits) charges, net; and
differences in the GAAP income tax rate compared to our historical
income tax rate. The components used to reconcile net loss per share to
Adjusted Net Income Per Share are consistent with our historical
presentation of Adjusted Net Income Per Share.

Management uses the Non-GAAP Measures, and believes they are useful
measures for investors, for a variety of reasons. Management regularly
communicates the results of its Non-GAAP Measures and management’s
interpretation of such results to its board of directors. Management
also compares the Company’s results of its Non-GAAP Measures against
internal targets as a key factor in determining cash incentive
compensation for executives and other employees, largely because
management feels that these measures are indicative of how our
radiology, oncology and interventional businesses are performing and are
being managed. The diagnostic imaging and radiation oncology industry
continues to experience significant consolidation. These activities have
led to significant charges to earnings, such as those resulting from
acquisition costs, and to significant variations among companies with
respect to capital structures and cost of capital (which affect interest
expense) and differences in taxation and book depreciation of facilities
and equipment (which affect relative depreciation expense), including
significant differences in the depreciable lives of similar assets among
various companies. In addition, management believes that because of the
variety of equity awards used by companies, the varying methodologies
for determining non-cash share-based compensation expense among
companies and from period to period, and the subjective assumptions
involved in that determination, excluding non-cash share-based
compensation from Adjusted EBITDA enhances company-to-company
comparisons over multiple fiscal periods and enhances the Company’s
ability to analyze the performance of its radiology, oncology and
interventional businesses.

In the future, the Company expects that it may incur expenses similar to
the excluded items discussed above. Accordingly, the exclusion of these
and other similar items in the Company’s non-GAAP presentation should
not be interpreted as implying that these items are non-recurring,
infrequent or unusual. The Non-GAAP Measures have certain limitations as
analytical financial measures, which management compensates for by
relying on the Company’s GAAP results to evaluate its operating
performance and by considering independently the economic effects of the
items that are or are not reflected in the Non-GAAP Measures. Management
also compensates for these limitations by providing GAAP-based
disclosures concerning the excluded items in the Company’s financial
disclosures. As a result of these limitations and because the Non-GAAP
Measures may not be directly comparable to similarly titled measures
reported by other companies, however, the Non-GAAP Measures should not
be considered as an alternative to the most directly comparable GAAP
measure, or as an alternative to any other GAAP measure of operating
performance.

The calculation of Adjusted EBITDA is shown below:

Quarter Ended March 31,

Twelve Months Ended March 31,

(in thousands)

2017

2016

2017

Net loss attributable to Alliance HealthCare Services, Inc.

$

(614

)

$

(1,190

)

$

1,069

Income tax (benefit) expense

(3

)

(945

)

3,794

Interest expense, net

8,700

7,495

35,711

Depreciation expense

14,073

13,048

55,997

Amortization expense

3,275

2,443

11,393

Share-based payment (included in “Selling, general and administrative

expenses”)

381

1,865

1,692

Severance and related costs

634

1,716

2,828

Net income attributable to noncontrolling interest

5,075

4,592

17,468

Restructuring charges

215

231

1,619

Transaction costs

162

417

1,631

Shareholder transaction costs

869

1,009

4,079

Impairment charges

—

—

632

Legal matters expense (income), net (included in “Selling, general
and

administrative expenses”)

—

155

(49

)

Changes in fair value of contingent consideration related to
acquisitions

The Company utilizes same-store volume growth as a historical
statistical measure of the MRI and PET/CT imaging procedure, linear
accelerator (“Linac”) treatment and stereotactic radiosurgery (“SRS”)
case growth at its customers in a specified period on a year-over-year
basis. Same-store volume growth is calculated by comparing the
cumulative scan, treatment or case volume at all locations in the
current year quarter to the same quarter in the prior year. The group of
customers whose volume is included in the scan, treatment or case volume
totals is only those that received service from Alliance for the full
quarter in each of the comparison periods. A positive percentage
represents growth over the prior year quarter and a negative percentage
represents a decline over the prior year quarter. Alliance measures each
of its major radiology and oncology modalities (MRI, PET/CT, Linac and
SRS) separately.

The Radiology Division same-store volume (decline) growth for the last
four calendar quarters ended March 31, 2017 is as follows:

Same-Store Volume

MRI

PET/CT

2017

First quarter

(0.7

)%

5.8

%

2016

Fourth quarter

(1.2

)%

5.8

%

Third quarter

1.1

%

5.3

%

Second quarter

2.0

%

5.8

%

The Oncology Division same-store volume (decline) growth for the last
four calendar quarters ended March 31, 2017 is as follows: